Investing in mutual funds (MF) through e-wallets and internet banking just got tougher. Fund houses such as ICICI Prudential and HDFC have sent out emails to their investors in recent times. “We would like to inform you that we do not allow transactions through wallets that are related to e-commerce platforms including bank wallets due to the ‘Third Party’ restriction as per SEBI guidelines to avoid any probable fraud,” HDFC MF said in its communication to investors. “For regulatory reasons, (some) banks won’t be available for online net banking transaction as they don’t support third party verification,” ICICI Prudential MF said in its e-mail to customers. The list has 20 banks, including Punjab & Sind Bank, UCO Bank, United Bank of India, Vijaya Bank, AU Small Finance Bank and ESAF Small Finance Bank.
Third-party verification missing
If your bank does not support third party verification (TPV), you would not be able to make investments in mutual funds (MFs) through channels such as e-wallets.
E-wallets have become increasingly popular, especially among millennials. However, SEBI rules mandate that investors have to route their money into MFs from their own bank accounts, to ensure a money trail. And the onus in on fund houses to ensure this. When investors invest via their e-wallets, it’s hard for fund houses to make sure where that money has come from. “Who knows from which bank accounts the money been loaded from, onto an e-wallet,” says a senior mutual fund industry official, requesting anonymity.
Fund officials say this problem is also prevalent with internet banking. When you invest in a fund through Real-time Gross Settlement (RTGS) or National Electronic Fund Transfer (NEFT) system, the transactions get routed through the Reserve Bank of India and your account details get mapped. But that is not always the case when you buy something via internet banking. Some banks, such as the ones cited by ICICI Prudential MF in its communication to investors, do not yet provide details to the receiving party (a mutual fund) the details of the bank account from which the money came. Hence, fund officials say they are unable to verify from whose bank account the money has come from,” said this official.
“We are doing it in the interest of investors as it would help us in preventing frauds. These banks (20 banks) constitute less than 10 percent of the overall investments made by customers,” industry officials said. “If the money flows from an unverified source, we would not be able to validate the transaction. It is better to invest through approved channels such as UPI, NEFT/RTGS,” officials said.
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Popular mobile wallets such as Paytm and Mobikwik offer ways to invest in direct plans of mutual funds through their apps. In 2017, SEBI had permitted investors to buy MF units worth up to Rs 50,000 through digital wallets. The regulator allowed individuals to use mobile wallets to invest in MFs only if the money is loaded into the wallet from the investor’s own bank account. Here again, the fund house has to ensure this happens. Otherwise, mobile wallets can also be loaded through cash, credit cards and cashback. Besides, as per SEBI rules, when investors redeem from MFs, the proceeds cannot go back to e-wallets. Money gets transferred to the investor’s bank account. And for this to happen, investors have to give their bank account details. So, industry officials say hardly any investor routes money into MFs through e-wallets.
What happens now?
You can still continue to invest in MFs through many other channels. You can use RTGS, NEFT, UPI (Unified Payments Interface) or a OTM (One-time Mandate).